All in this together

To what extent does the shifting and expanding risk environment demand much greater interaction between the public and private sectors?

The risk environment is highly charged at present sparked by a combination of macro and micro factors. COVID-19 has clearly shown the systemic risk posed by communicable diseases, while a rapidly evolving climate is not only increasing event frequency and severity but also escalating issues such as mass migration due to water and food shortages.

In addition, cyber-attacks and terrorism continue to generate significant threat potential, while multiple other megatrends, such as resource scarcity and an aging population, are creating an immense societal burden. This is all set against a backdrop of global economic downturn, the war in Ukraine and growing geopolitical tensions.

In such a complex and challenged environment, it is critical that the insurance industry works in tandem with the public sector to create facilities of sufficient financial and risk scope to proactively address exposures of this magnitude.

What initiatives are we seeing at the global level which are looking to drive closer collaboration between all parties?

There is a growing recognition that governments cannot resolve or solely bear the financial burden of the range of large-scale risks that society is exposed to.

In 2020, the World Economic Forum called for the development of an action plan for building a more resilient and sustainable world. The creation of what was described as a “new societal risk compact” clearly positioned the insurance industry as a core component of efforts to create a more symbiotic relationship between the public and private sectors for the benefit of society at large.

On the climate-change front, the G7 recently pledged its commitment to the creation of a Global Shield against Climate Risks. This will involve public and private parties focusing on the development of risk pools to protect those must exposed to climate-related disaster.

There are multiple initiatives taking place at the country-level that have a similar focus. For example, Guy Carpenter is playing a central role in the Resilience UK initiative which provides a framework that promotes greater collaboration between government and private sector to manage systemic risks, such as cyber and climate change.

How are public/private partnerships serving to bolster societal resilience?

Public/private partnerships provide an established and effective mechanism for helping governments to de-risk their balance sheets by transferring more of their financial exposure to the insurance sector.

Such solutions not only act as a means of delivering financial security at times of major loss, but also are structured to promote improved risk mitigation, support enhanced societal resilience and create a more sustainable and affordable insurance market for the communities affected.

The effectiveness of close public/private collaboration has already been demonstrated on numerous occasions. If we take the impact of 9/11 on the terrorism market which caused an almost wholesale market failure overnight, it was through the development of these partnership-based mechanisms that we were able to create the functioning, more resilient terrorism insurance market that we have today.

It is also important that such initiatives are being undertaken at all levels of society. For example, at Guy Carpenter, we have developed our Community-Based Catastrophe Insurance solution which is designed specifically to protect those disadvantaged communities most exposed and which incorporates a pre-event plan which spans actions that enhance community resilience and prioritise risk mitigation.

The aim is not only to boost protection, but also reduce loss impact and as a result stimulate a more affordable and resilient insurance marketplace.

What more needs to be done to facilitate the development of public/private partnerships?

Fundamentally, it is about bringing more parties to the table so that the discussions can centre on the creation of the most effective partnership-based solution. The insurance industry has a huge amount of expertise that it brings to the table in terms of modelling and analysing risk data as well as structuring efficient and effective risk transfer solutions.

We need to ensure that innovation is an integral part of the solutions being developed given the unparalleled scale of the challenges that society faces. Parametric insurance solutions, for example, can serve a core component in ensuring speed of payment to those impacted by a major loss.

We also need to recognise that the growing scale of the risks faced is creating a loss potential much greater than the current capital base of our industry.

We therefore need to encourage greater capital market involvement across a broader range of perils to ensure these solutions are sufficiently financially robust but also combine this with strategic advice so that risks can be reduced prior to events happening – a true end-to-end solution.

Julian Enoizi is global head of public sector at Guy Carpenter